Hedge Funds Strategies That You Should Be Aware Of

A hedge fund somewhat resembles a mutual fund, but has a number of peculiarities that one needs to understand. Hedge funds employ various strategies that are not usually found in case of mutual funds. The term "hedge" can be misleading for a common man. A hedge fund is actually hedged, for example, a fund involving a long-short strategy would select the most profitable securities for purchase and the least profitable ones for short sale. A hedge fund may be in the form of a real estate fund. India is a growing economy so there are foreign investors willing to invest in hedge funds in the country. There are many different strategies that can be adopted to get a better return on the capital you invest. Some basic strategies that an investor should know are:

• Convertible Arbitrage- This is a long-short equity strategy. Instead of buying stock in one company and selling short the stock of another, convertible arbitrage buys convertible securities, usually convertible bonds, of a company and short-sells common stock of the same company. This strategy attempts to take advantage of any pricing inefficiencies. Risk expectancy in such a strategy is low to moderate.

• Distressed Securities- It involves purchasing securities of companies that are facing potential bankruptcy. Bonds are the preferred securities in this strategy, but bank debt, trade claims, preferred stock or even common stock can be included in the strategy. The companies being in distress, the securities that the fund is looking to purchase are selling at deep discounts. Risk expectancy is moderate.

• Emerging Markets- Funds of this variety tend to invest in emerging market countries and the securities offered in those markets. It is difficult to define an emerging market, but the general description would be a country that has a low per-capita income as compared to nations that are developed. Such economies are volatile and tend to have higher inflation rates. Risk Expectancy is high in this strategy.

Firms like Everstone Capital, headed by Atul Kapur, are working on strategies to revolutionarise the real estate fund market in India and give investors better investment opportunities to attract investors from around the globe.